The Business

Penalties on former James Hardie directors reduced.

Updated
November 12, 2012 22:39:40

Bob Austin, a senior consultant at law firm Minter Ellison, discusses the decision by the New South Wales Court of Appeal to reduce penalties on former James Hardie directors who were found to have failed in their duties.

TICKY FULLERTON, PRESENTER: The directors of James Hardie, who the court found misled investors with a press release claiming its asbestos compensation fund was fully funded to meet claims, have had their penalties halved today.

Now, Bob Austin is a senior consultant at law firm Minter Ellison and a former Supreme Court judge and he's followed the case from the start and joins me now.

Bob, welcome to the program.

BOB AUSTIN, SENIOR CONSULTANT, MINTER ELLISON: Thank you Ticky.

TICKY FULLERTON: Now, we had the High Court ruling on this of course in May. This was just about what was happening with penalties.

BOB AUSTIN: That's right. The judgment today was just about penalties.

TICKY FULLERTON: Disappointing for ASIC, because they were lowered?

BOB AUSTIN: I don't think so. The pecuniary penalties for most of the non-executive directors were lowered by $5,000, so that wasn't much of a difference. The disqualification orders were more than halved, as it turned out, and for the majority of the non-executive directors the disqualification orders will end in April next year.

TICKY FULLERTON: I guess in terms of being one of those directors, that wasn't what did the most damage to them really, was it?

BOB AUSTIN: No, that's right. It was the reputational damage of the original finding in 2009. But ASIC won't be unhappy because there's some quite firm findings about the seriousness of the contraventions.

TICKY FULLERTON: So what did ASIC actually underline, if you like? Sorry, what did the court underline, yes?

BOB AUSTIN: The court. Well, there were two sets of directors. There were the Australian directors and then the two who participated remotely from the United States. As to the Australian directors, the court said that there was a glaring failure to discharge their responsibilities as non-executive directors of the company on a matter of very great significance to the company and the wider community.

TICKY FULLERTON: So that's quite strong words, isn't it?

BOB AUSTIN: That's right. So far as the US directors are concerned, they abdicated their responsibility, though their contravention was not quite so serious. Because they suffered by not having access to the market announcement which was the basis of ASIC's complaint.

TICKY FULLERTON: But I guess what they - the ruling was saying is that they should've either seen it ...

BOB AUSTIN: That's right.

TICKY FULLERTON: ... or ...

BOB AUSTIN: Or abstained.

TICKY FULLERTON: Or abstained. Indeed. There seems to be a push to actually formalise these sorts of decision-making processes around the board from the court's point of view?

BOB AUSTIN: Yes. That's absolutely right. We've seen in the High Court judgment in May a great emphasis placed on taking accurate minutes of the board's meeting. And so now public company boards are focusing a lot of attention on the accuracy of their minute-taking. And then in this judgment, the Court of Appeal says so far as the US directors were concerned, as we said, they should have abstained or else properly participated, they shouldn't have let it slide through.

Again, an emphasis on formality. And perhaps most important in the long run, Justice Barrett, who wrote a concurring judgment, said separately that the days of - what he said was: "Value is often attached to collegiate conduct leading to a consensual decision-making." But he said, "There are serious risks in that," because there needs to be an appropriate formality to reflect the fact that each director has to make an individual decision and take personal responsibility for it.

TICKY FULLERTON: So the sort of a herd mentality around the board. It does go on, presumably?

BOB AUSTIN: Well it's no longer appropriate, according to His Honour, for the chairman to say after discussion, "Well, I think we're all agreed that," and move on to the next matter.

TICKY FULLERTON: But that does go on. I mean, we know that goes on.

BOB AUSTIN: Well now there has to be more formality, I'm afraid.

TICKY FULLERTON: Briefly, do you think - what are the chances of any of these directors come April getting back on top 100 boards?

BOB AUSTIN: Well, there are some findings in this judgment in their favour. Their community service is recorded. Their flawless records, apart from this. And I suppose their prospects will depend on individually how old they are.

TICKY FULLERTON: Alright. Well we'll see. Very interesting. Post-April. Dr Bob Austin, thank you very much for joining us.

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